Cost of Ownership – Manila Bulletin
Many people often forget that the cost of owning something isn’t just about what you paid for the asset. Often times, there are recurring fees that you have to spend to keep and maintain your property. Let me walk you through the different levels of cost of ownership.
On a very basic level, the cost of ownership is really limited to what you paid for it, like a ballpoint pen or a pair of glasses. A cut above are those that require minimal temporary storage costs, such as groceries you keep in the fridge or ice cream you need to keep in the freezer.
Another category includes valuables which may require no additional cost, but you can choose to spend money for your peace of mind. Examples are expensive wristwatches that you might want to have serviced periodically, gold and diamond jewelry that you might want to spend on a suitable safe, put them in a safe, or even have them. make sure. This would also include numismatic coins that many collectors spend extra money on to have them professionally classified and encapsulated.
The move to a more complex level of ownership is one that would require multiple periodic costs and involve the government. One example is the possession of a vehicle. You need to have your car serviced periodically to keep it safe and in good working order, which in the Philippines is every 6 months or 5,000 km, whichever comes first. There are also a number of mandatory requirements such as liability insurance and annual vehicle registration that require a smoke emission test which can become a full motor vehicle inspection. For the companies that own the vehicle, this also means an annual depreciation charge.
At the top in terms of cost is real estate ownership. Even with just one lot you will have to pay your annual property tax to the government and depending on the location there could be association dues and security fees to keep your lot from being squatted. For properties that have improvements such as a house or building, you will need to pay separate property taxes for those that are normally higher than the land. Additional costs are required to maintain and secure the improvements, which are also depreciable assets.
You need to factor in all of these costs and taxes when acquiring a property, especially if you were to borrow money to acquire the property, which would mean that you now have to add the interest and principal payment to your cost or cost. your property. If the property is a productive asset such as those used in business, leased or generating cash flow, your expenses may be covered by this investment.
The situation is different if the asset is a non-performing asset. This would mean that you need to budget or forecast the recurring or recurring costs, expenses, fees, and taxes at the appropriate time. For example, paying your property taxes earlier than expected normally gives you a discount of up to 20%. On the other hand, paying late means having to pay a penalty. Making the decision to own something shouldn’t be based solely on the cost of acquiring it and its potential for appreciation, you should also consider the cost of ownership.
(The views and comments of the author are his own and not those of the Journal or FINEX. Comments can be sent to [email protected])
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